Sophisticated insureds looking for ways to reduce their insurance premiums often elect to purchase liability insurance that is subject to a deductible or self-insured retention. Typically, liability policies that contain deductibles still include language granting insurance companies the exclusive rights to control the defense, investigation, and settlement of claims and suits, and to seek reimbursement from named insureds of those amounts that fall within the policies' deductibles.

A typical deductible provision provides:

• The company may pay any part or all of the deductible amount to effect settlement of any claim or suit and, upon notification of the action taken, you shall promptly reimburse the company for such part of the deductible amount as has been paid by the company.
• Additionally, liability policies almost universally define “you” as “the 'named insured' listed in the policy declarations.” Thus, it is usually the named insured who is responsible for payment of a policy's deductible.

It is common in construction and commercial real estate settings, among others, for one party to the contract to require that the other party name it as an additional insured on the other party's general liability policy. For example, owners and general contractors commonly require each subcontractor to add the owner and general contractor as additional insureds under the subcontractor's liability policies. This usually is accomplished through an additional insured endorsement.

A potential dispute can arise if an insurance company settles a claim against an additional insured for an amount that substantially eats up the policy's deductible, and then seeks to collect the deductible amount from the named insured. The named insured may dispute whether the other party is an additional insured under the policy. Even when the other party's insured status is not in dispute, the named insured's interests may not be aligned with the additional insured's with regard to the settlement of claims against the additional insured.